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Hard Sell: How to Make Succession Planning Easier

Most advisors hope their business—and their clients—will stay in good hands. Here’s why it can be hard to translate that desire into a succession plan

Financial planner Dick Vodra, a longtime friend, sold his business to a like-minded colleague not long ago. Hoping to benefit from his perspective in retirement, I asked him how other advisors are dealing with succession planning these days.

Many have no intention of retiring, Vodra told me. They insist, “I’ll work till I drop.” But, he added, if someone were to ask what would happen after they drop, often there’s silence.

Succession planning has been discussed for a number of years as independent advisors move into their 50s, 60s and 70s. Although most of these older professionals want to reap the rewards of their hard work, pass on a legacy and enjoy the next stage of life, some resist dealing with this transition in a way that will serve their clients and themselves well.

To examine some of the fears and anxieties around passing on a business, I interviewed three experts who are frequently involved in this process: David DeVoe, managing partner of DeVoe & Co., a mergers and acquisitions consulting firm in San Francisco; Barbara Hudock, CEO of Hudock Moyer Wealth Resources in Williamsport, Penn.; and Cam Marston, president of Generational Insights, a consulting firm in Mobile, Ala.

DENIAL OF MORTALITY

Denial of death and dying is a huge element in our culture, so it’s not surprising that many advisors act as if they’ll go on forever at the top of their game. But I have to believe that niggling fears at the back of these advisors’ minds are warning them that they’re not taking care of their business, or their clients, by avoiding the possibility of future decline. Just as important, they are passing up opportunities to plan a third age that might be richer and even more fulfilling for themselves.

Dave DeVoe runs into this issue in his presentations to wealth managers. “When I ask if succession planning is important, 80% will raise their hands,” he said. “When I ask who has a written succession plan in place, only 25% of the hands will remain.”

But attitudes may be changing. “‘Die with your boots on’ as a succession plan is a refrain I hear much less than I did 10 years ago—which is a good thing, because that outcome has a negative effect on the client base,” DeVoe said. “Imagine an 84-year-old client getting a letter in the mail or a call from an administrator saying, ‘Your advisor died—you’re on your own.’ ”

His advice: “At a minimum, you want to have a buy/sell agreement in place with an advisor who shares your investment and client service philosophy. Then if you get hit by the proverbial bus, your clients can turn to someone who is ready to serve them.”

DESIRE TO WORK FOREVER

The idea that you can work on and on while serving clients as well as ever is in most cases a fantasy. The reality of old age is that bodies tend to wear out and minds slow down. While there’s no harm in expecting the best from the years ahead, it’s wise to prepare for the worst—the very advice financial planners often give their clients.

“I don’t believe age should be a reason for leaving,” wealth consultant Barbara Hudock told me. “This work is my passion, and I do plan to continue for a very long time. But if I got the impression that I was not adding value any more in working with clients and managing details, I’d make plans to leave.”

For years, Hudock has been mentoring and training her staff to gradually take over more of the roles she handles. “I’ve structured it so that I can stay involved without doing everything I did before,” she explained. With multilevel relationships in place, the firm is less vulnerable if anything should happen to her. “If I get hit by a car tomorrow, I might be—hopefully will be—missed, but my clients know they’ll be in good hands,” she said.

In her view, more advisors would do well to prepare carefully with their partners or junior staff for their firm’s future: “We need to be honest and direct, recognize our strengths and talk to each other.” Moreover, it’s a good idea to have a succession plan in writing, as Hudock Moyer Wealth Resources does.

FEAR OF ABANDONING CLIENTS

Older advisors may also resist handing their clients over to someone who won’t understand or handle them as well. “We all have that fear if we are good,” Hudock agreed. “We love our clients, and we love to make them happy by taking good care of them. Our ego is very invested in that relationship.”

The solution, she believes, is to cultivate your own successors. “What I have done with all of my clients is to bring someone into every meeting who can take notes and help me follow up,” she said. “Very gradually I will let them take over a piece of the meeting. Eventually it evolves to the point where the person I brought in is running the meeting and I am there for the relationship.”

For Hudock, there’s enormous satisfaction in knowing that her clients and her firm will continue to thrive if anything happens to her. “I believe that is because we started at a minute level and very gradually [our service support people] got more and more involved.” The process, she said, has been “so easy and so simple. The most important thing is to start with baby steps. Start wherever you are, with whoever you’re working with.”

DAUNTED BY SUCCESSION TRAINING

At present, Hudock’s internal succession growth strategy is not that common. Many advisors feel they don’t have the time, energy or perhaps the coaching skills to train someone younger to take over the business.

“Coaching gives you an opportunity to see if someone will succeed or fail,” Dave DeVoe pointed out. “Many advisors acknowledge that coaching employees is not a strength they have, but they need to develop this key management skill.” The learning process may take some time, particularly for entrepreneurs who built the business on their own. “After so many years of being responsible for everything, it can be hard for them to give up control,” DeVoe noted.

Consultant Cam Marston summed up, “It may be a tremendous amount of work to train the next generation, and that can seem like a daunting task. Owners may also fear that someone younger won’t represent their legacy well. In addition, thinking about succession means confronting your own mortality, and no one likes to do that.

“These are normal, everyday emotions that anyone in their situation would feel,” he said. “However, they need to suck it up and do it anyway.”

TIMIDITY OF JUNIOR EMPLOYEES

Closely held businesses with little turnover can develop dynamics resembling those of a dysfunctional family. In practices dominated by “the boss,” younger employees may be reluctant to initiate talk about succession for fear of challenging “Dad” (or “Mom”).

Regular company retreats can breathe air into a closed system like this, helping younger employees see that their elders are simply co-workers with more experience.

Cam Marston observed, “You can’t just come in and say, ‘Here’s what I want to do.’” To build a bridge between generations, the younger person needs to validate and appreciate what the older has accomplished before encouraging them to move into the future. Marston suggested, “You need to start by saying, ‘I respect what you built, and I’m not here to change it for change’s sake. I just want to make some observations on market trends that we need to pay attention to.’”

Marston pointed out that planning for succession can also be sabotaged by a critical difference in viewpoint. “Older generations want to sell their book of business based on their hard work,” said the Generational Insights president. “The younger generation wants to buy a business based on its potential, not its history. That’s the big divide, where all the challenges come from. The older generation says, ‘Look what I’ve created,’ and the younger generation says, ‘Yeah, but what’s it going to do from now on?’”

FINDING COURAGE TO FACE THE FUTURE

Many older advisors would do well to take off their rose-colored glasses and contemplate the future more realistically. As Dick Vodra reminded me, it’s far better to actively direct the process, shaping what happens to your clients and the value you’ve created, than to let it all erode after your death or impairment.

Unless you need to exit your business very soon, consider training a successor in small, gradual steps. For younger advisors willing to practice “courageous followership” (as my friend and author Ira Chaleff calls it), begin by respecting your elders’ strengths, expertise and achievements, and valuing the company’s mission. With this foundation, you may be able to suggest some changes that will help the business stay successful, and maximize your role in it.

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